Overview First Draft of NERC s 2014 Business Plan and Budget

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1 Overview First Draft of NERC s 2014 Business Plan and Budget Michael Walker, Chief Financial and Administrative Officer Finance and Audit Committee Meeting May 3, 2013

2 Agenda Update on business planning process Strategic plan goals and major activities Application of Section 215 criteria Revenue requirements to support: Ongoing operations Regulatory mandates Key initiatives Request for comments Next steps/review of business plan and budget schedule 2

3 Business Planning Process Update to strategic plan - May 2013 Board meeting Reviewed NERC and Regional activities in relation to strategic plan Identified gaps and initiatives to close gaps. Applied Section 215 criteria to NERC s major activities Potential funding of certain activities outside Section 215 Developed projected revenue requirements to support: NERC s ongoing core operations New regulatory mandates Key strategic initiatives Seeking stakeholder input 3

4 Strategic Plan Key Points Standards Clear, reasonable and sound mandatory standards Practical to implement and cost effective Compliance, Registration, and Certification Strong enforcement authority, objective and fair Culture of compliance addresses reliability risks Monitoring commensurate with entity roles and risk Risks to Reliability Most significant risks to reliability Accountable for mitigating reliability risks Culture of reliability excellence Coordination and Collaboration Collaborative enterprise with improved efficiencies 4

5 Goal 1: Clear, Reasonable, and Technically Sound Standards Objective 1a: Timely, clear, and responsive to risks Objective 1b: Practical and cost effective Focus for 2014 Departments Continue to accelerate standards clean up Standards reform efforts Independent expert review Risk-informed standards Reliability Standards Support from all other departments CIP transition Cost effectiveness assessment 5

6 Goal 2: Strong Enforcement Authority, Objective and Fair Objective 2a: Registration is risk based; certification is effective Objective 2b: Accountability is clear, timely, and transparent Objective 2c: Compliance monitoring is commensurate with risk Focus for 2014 BES Phase II exception process Functional model review Common and consistent approaches to risk-based registration RAI Implementation Consistent enforcement focused on priority risks Departments Reliability Standards Compliance Operations Compliance Enforcement Information Technology 6

7 Goal 3: Culture of Compliance Addresses Reliability Risks Objective 3a: Industry has effective internal controls to ensure reliability Objective 3b: ERO enforcement is efficient and uses proportional discretion Focus for 2014 RAI Implementation Emphasize proactive approaches, learning, internal controls Continue and expand use of Find, Fix, and Track Departments Compliance Operations Compliance Enforcement Critical Infrastructure Training, Education, and Operator Certification Information Technology 7

8 Goal 4: Most Significant Risks to Reliability Objective 4a: Risks identified and prioritized effectively Objective 4b: Events are well analyzed and inform the industry Focus for 2014 Departments Reliability Risk Register and Risk Profile development Risk analysis integrated with business planning Increased use of Event Analysis in risk considerations Reliability Assessment and Performance Analysis Events Analysis Information Technology Convergence of key metrics and analysis tools 8

9 Goal 5: Accountable for Mitigating Reliability Risks Objective 5a: ERO tracks accountability for critical recommendations Objective 5b: Industry is addressing security threats, and constantly improving security posture Focus for 2014 Departments Metrics to evaluate success of interventions Track implementation of recommendations ES-ISAC capability Promotion of maturity model self-assessments Reliability Assessments and Performance Analysis Events Analysis Situation Awareness Critical Infrastructure 9

10 Goal 6: Culture of Reliability Excellence Objective 6a: Leading information resource for industry and policy makers Objective 6b: Models and data are accurate and shared Focus for 2014 Departments Sharing of event information Develop reliability risk analysis center of excellence Investments in ERO trending and analysis tools Reliability Assessments and Performance Analysis Events Analysis Information Technology Modeling and data improvements 10

11 Goal 7: Collaborative Enterprise with Improved Efficiencies Objective 7a: Acquire, engage, and retain highly qualified talent Objective 7b: ERO processes are efficient and internal risks are managed Focus for 2014 Continued coordination with and between Regional Entities 5-year assessment Talent recruiting and retention ERO applications & technology migration Departments All operating departments Human Resources Information Technology Finance and Accounting Improved operating efficiency and internal risk management 11

12 Application of Section 215 Criteria All major activities fall within proposed guidelines Option to voluntarily separate and fund certain activities outside Section 215 ESCC support ES-ISAC Operator certification and testing Governance, accounting and funding details need to be addressed Revised ESCC governance model Accounting considerations Direct costs, working capital, operating reserves, overhead and administrative cost allocations Billing, collection, and other considerations Timing 12

13 Cost of Ongoing Operations Reflects 2013 budgeted FTEs and headcount plus four (4) additional personnel to support current operations Engineer in RAPA to support Events Analysis Initiative Administrative support for legal and enforcement Database analyst Webmaster Net increase of.36 FTEs over 2013 Average salary increase below industry average Personnel attrition factor Continuation of 2013 reductions in medical and retirement benefits Market increases in health care costs Elimination of IDC and NASPI funding 13

14 Cost of Ongoing Operations 2013 Budget 2014 Budget Ongoing Operations $ 31,298,405 Total Personnel Expense $ 34,301,192 $ 4,098,310 Total Meeting Expense $ 3,907,500 $ 8,816,254 Contracts and Consultants $ 6,399,240 $ 8,251,187 Operating Expenses $ 8,465,150 $ 50,000 Non-Operating Expenses $ 50,000 $ 1,772,100 Capital Expenditures $ 1,701,800 $ 54,286,256 Total Budget $ 54,824, % 14

15 Additional 2014 Revenue Needs Additional revenue requirements fall in four (4) major categories: Regulatory mandates Standards Reform Initiative Reliability Assurance Initiative ERO Enterprise Information System Some initiatives require multi-year funding Additional ES-ISAC support addressed separately 15

16 Regulatory Mandates Vegetation research FERC FAC-3 Order $500K Formulate plan to conduct research on minimum vegetation clearance distance (MVCD) Empirical validation of MVCD Actual flash distances observed through testing Analysis of such events Draft statement of work from EPRI Vegetation management on public lands $100K Gather/analyze data regarding vegetation management issues on public lands As warranted, propose means to address issues Reliability effects GMD $250k Modeling studies/assessments 16

17 Standards Reform Initiative Benefits Reduce unnecessary compliance costs/regulatory uncertainty Clear, concise, cost effective and impactful results-based standards 2013 Standards Independent Expert Review Project Retain panel of independent industry experts ($378k) Identify existing standard requirements which are low quality, low reliability impact, and impose unnecessary costs on industry Provide roadmap for standards development plan Propose 2014 funding ($200k) $200k for experts to ensure progress against baseline 17

18 Reliability Assurance Initiative Benefits Improve BES reliability Increase efficiency, consistency Reduce cost of compliance on industry Resourcing approach Maximize use of existing NERC and Regional staff Draw from industry where possible Re-adjust priorities to increase bandwidth Use consultants to jump start and increase bandwidth Proposed funding for consulting support ($800k) Standardize ERO-wide audit processes ($500k) Develop/implement tools to support RAI process improvements ($300k) 18

19 Current State Compliance Risk Analysis Generator Metrics Transmission Metrics Demand Response Event Analysis Assessment Data Region Only Systems Technology Multiple Applications Multiple Databases Outdated Technology Limited Integration Multiple Logins Multiple Registrations Current Experience Inefficient Expensive Complex Redundant Effort Limited Usability Multiple systems Manual Data Cleansing Limited Analysis Labor Intensive 19

20 Future State Technology Single Sign-On Single Registration Integrated Databases Flexible Technology Robust Analytics Accessible (securely) Anywhere Common Architecture Future Experience Efficient Cost Effective Automated Business Intelligence / Analytics User Self-Service Risk Based Analytics Reduced Manual Effort Effective Resource Utilization 20

21 Compelling Benefits Registered Entities Regional Entities ERO Enterprise Reduces Resources to Sustain Systems, Usability, Data Entry, etc. Streamlines Application Experience, Saves Training Common Interfaces & Application Governance Ends Duplicate Data Entry Streamlines Data Submittal & Validation Expands Analytic Flexibility and Direct Reliability Value Makes Coordination Less Manual Improves Risk-Based Analysis & Prevention Centralized Data Replaces Many Inconsistent Copies Builds Framework for Culture of Learning Less Software to License Less System Maintenance Proactively Identifies Vulnerabilities Across Systems Reduced effort = improved resource utilization 21

22 Enterprise Timeline Initial Consolidation BES EIDS RADS Single Sign-On Application Registration Common Portal & Basic Analytics Integrated Database Enterprise Reporting Initial BI/Analytics RAI Future Applications Reduced Systems Enhanced Analytics Integrated Dashboard Enhanced Reporting Holistic View Reduced Complexity Increased Efficiency Standard Public Report Capability 22

23 ERO Enterprise Information System Estimated Cost Reliability Assessment Applications Compliance Applications Events/Risk/ Business Analytics Applications Year Estimate $700K $120K $120K $940K $150K $1.5M $500K $2.15M $500k $1.1M $400k $2M Data center $420K $480K $540k $1.4M Contractor Support $510K $600K $600K $1.71M Subtotal $2.18M $3.8M $2.16M $8.2M 23

24 Summary Additional Revenue Requirements Regulatory Mandates Standards Reform Initiative Reliability Assurance Initiative ERO Applications Subtotal $850K $200K $800K $2.18M $4.03M 24

25 Cyber (ES-ISAC) Cost of current operations (without overhead allocations) $2.4M 7 FTEs Includes software licensing, contractor and consulting support for ESCC and ES-ISAC, security exercises, assessments Incremental 2014 ES-ISAC contractor/consulting support ($550k) Information sharing Intelligence gathering and reporting Cyber risk preparedness assessments Cyber threat modeling and analytics Incremental 2014 personnel (5 FTEs/$1.2M) 25

26 Stakeholder Input Requested Option and mechanics of funding ESCC support, ES-ISAC and Operator Certification and Testing outside 215 Standards Reform Initiative and funding requirements Reliability Assurance Initiative and funding requirements ERO Enterprise Information System strategy and funding requirements 26

27 Next Steps Schedule Date May 8 May 22 May 30 Early June June 10 July 11 Activity Presentation of first draft of NERC 2014 Business Plan and Budget at MRC Meeting FAC conference call and webinar to review REs Business Plans and Budgets Stakeholder comments on first draft due Closed FAC conference call to provide input to management for second draft of NERC business plan and budget NERC posts second draft of business plan and budget Comments due on second draft of business plan and budget 27

28 Next Steps Schedule Date July 19 August 12 Activity FAC meeting to review second draft of NERC Business Plan and Budget, and proposed final REs Business Plans and Budgets FAC meeting to approve final NERC and REs Business Plans and Budgets and assessments August 14 (If needed, recap of 2014 Business Plan and Budget) Discussion of 2015 Business Plan and Budget process August 15 August 23 Board of Trustees meeting to approve final NERC and REs Business Plans and Budgets and assessments Submit ERO Business Plan and Budget and assessments to FERC for approval. File with Canadian authorities 28

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